Legal News

Mass. Sues Madoff Feeder-Fund Fairfield Greenwich, Alleging Fraud

By Ashby Jones

Bernie Madoff may be gone — currently holed up in the Metropolitan Correctional Center until June 16, when he’ll be sentenced — but his doings continue to fill up judicial dockets and keep lawyers plenty busy.

The latest: Massachusetts securities regulators have charged Fairfield Greenwich Group, a major feeder fund for Bernard Madoff, with fraud, saying the company breached its fiduciary duty to clients by failing to provide promised due diligence on its investments. Click here for the administrative complaint, here, here and here for earlier stories on Fairfield Greenwich’s involvement in the Madoff situation.

The complaint, filed on Wednesday by Secretary of the Commonwealth William F. Galvin alleges a “profound disparity between the due diligence that Fairfield represented to its investors that it would conduct with respect to Bernard L. Madoff Investment Securities and the due diligence it actually conducted.”

The complaint said the firm misrepresented its “degree of knowledge and comfort with respect to Madoff’s operations.” The charges, not criminal, are the first regulatory action against a so-called feeder fund, a fund that gained access for investors to Mr. Madoff. About $7 billion of
Fairfield’s assets were invested with Mr. Madoff.

The complaint seeks restitution to Massachusetts investors for losses and disgorgement of performance fees paid to Fairfield by those investors, as well as an administrative fine.

The complaint says that Mr. Madoff coached Fairfield officials in 2005 on how to respond to questions from SEC attorneys who were looking into concerns voiced by Harry Markopolos, later credited with bringing information to the agency raising questions about Mr. Madoff’s operations. Mr. Madoff pleaded guilty to perpetrating a massive Ponzi scheme and is now in prison awaiting sentencing.

Fairfield wasn’t immediately reached for comment.

Full post as published by Law Blog - WSJ.com on April 01, 2009 (boomark / email).